Securities are of high interest among potential investors. After all, buying stocks, bonds or other types of them is a more profitable investment of funds than, for example, a bank deposit that saves money, but does not always cover Russian inflation.
Types of Securities
It is with this question that it is worth starting. To understand what securities are classified as equity, you need to know their existing types:
- Stocks.
- Bonds.
- Bills.
- Checks.
- Bank certificates.
- Bills of lading.
- Mortgages
- Investment units.
A name alone is not enough to understand the point. Therefore, we need to talk more about each type of securities.
Stocks
Allow the owner to claim part of the profits of the corporation. All shareholders are periodically paid dividends. Also, the owner of the shares can participate in the management and receive part of the property in case of liquidation of the enterprise. They are simple and privileged. All shares issued by the company comprise its capital. All holders of these securities are considered co-owners.
Bonds
To become an owner, you need to pay a certain amount, which can be lower, equal to or higher than the nominal. During the tenure, the bondholder receives regular income. At maturity, the nominal value is returned to him in exchange for previously acquired securities.
Bills
Confirm the obligation of the debtor to repay the debt in a timely manner. Moreover, there are two types of promissory notes:
- Plain. Confirms the obligation of the debtor to return the specified amount to the owner of the bill.
- Transferable. Confirms the obligation of the debtor to return the specified amount. But not to the holder of the bill, but to the person indicated in the security.
Checks
They are a written guide for a banking organization, obliging you to transfer the right amount of money to the specified person. The order must be executed during the term of the security.
Bank certificates
In other words, this is a certificate confirming a cash deposit in a bank. Based on this security, the credit organization undertakes to return the deposit amount and accrued interest to the owner. Legal entities are issued certificates of deposit, individuals - savings.
Bills of lading
Security paper for shipping. Gives the right to receive it.
Mortgages
The owner of such a security can count on the timely receipt of a monetary obligation or property. It is indicated in the mortgage as a pledge.
Investment shares
The owner of such a security is vested with the right of ownership of property located in the mutual fund.
So, having figured out the main types, you can highlight some other issues.
Equity security is ...?
This is one of the financial instruments. The owner of the equity paper receives the right to part of the property of the company issuing it. From the above types, it can be concluded that stocks are equity securities. They are often confused with debt due to similar names.
In order not to be confused, a novice investor should understand the terms. So, how are equity securities different from debt securities? The difference is quite simple, remembering it is easy.
Debt is the company's borrowed capital. Equity - on the contrary, her own. With the help of bonds, companies attract additional financing. Simply put, borrowed. Is a bond an equity security? No. Now you know why.
A stock, on the contrary, is an equity security. It allows you to divide the company into small parts and sell it to different owners. They are called shareholders. Thanks to their funds, the company forms fixed capital. Investor money allows the business to grow. As a thank you, the company pays dividends to its shareholders and may even allow them to perform managerial functions.
An investment share is an equity security. We will talk about it below.
Common stocks
Allow owners to claim a stake in the company. They also have the right to vote at meetings. The owner of the shares has the right to receive information about the activities of the enterprise, etc.
The larger the investor's share in the authorized capital, the wider the range of rights he has.
Preference shares
This equity security also allows you to claim a share of the property. However, preferred shareholders do not gain access to management functions in the corporation. However, in the case of liquidation, they claim to receive their share in the first place, and also have advantages in the distribution of dividends. What does this mean in practice? If the holders of ordinary shares do not receive profit from unprofitable activities, then preferred holders can count on dividends specified in the charter. However, this is not all you need to know.
Preferred shares are of several types.
- Cumulative. Dividends are accrued to the investor and may be paid during subsequent periods.
- Non-cumulative. If payment is not announced for any reporting period, dividends are not paid.
- Equity shares. They make it possible to receive dividends in a larger amount. This occurs when payments on ordinary shares have exceeded the previously announced amount.
- Convertible. The owner of this type of preferred shares can exchange them for common. Bet is discussed in advance.
What stocks to choose?
Answering this question, investors evaluate their own risk appetite.
For example, preferred shares allow you to feel relatively calm. According to them, dividend payments are guaranteed, as well as benefits in the liquidation of the company.
When buying ordinary shares, the investor is at greater risk. He is not guaranteed a stable payment of dividends and the receipt of part of the property in the event of liquidation. However, profits will be higher than those of the preferred holder if the company achieves good financial performance.
Investment share
It is an equity security on a par with shares. Special funds raise funds and then invest them in various instruments. This may be real estate, other securities and some alternative ways to increase financial capital.
Next, the value of the assets held by the fund is estimated and divided into units. By purchasing an investment share, in exchange you can get part of the investment portfolio.
To manage the fund, hire a management company. It is in her jurisdiction that deals with the issuance, purchase, and sale of investment shares. Their owners have the same rights. Investment units are usually issued in electronic form. In the same way, a register of shareholders is created and maintained.
Features
The securities market in Russia is attracting more and more investors, increasing volumes. That is why for some this area is especially attractive. As for equity securities, investors often see them as a speculative instrument in the short and medium term.
They are freely traded in the market. But there are some exceptions. For example, registered shares. They are recorded in a special register, so transactions with them are made in a slightly different way.
However, there are many tools on the exchange that allow an investor to carry out various operations with securities. Most of them run remotely.